Is It Time for a Complex Litigation Docket for Texas Foreclosures?

The Texas court system has seen a dramatic increase in foreclosure litigation since the financial crisis of 2008. The good news is Texas foreclosures are currently on the decline as the housing market slowly recovers. However, history is quick to remind us the market’s cyclical nature, and therefore, it is likely the demand in this area of law will persist for years to come.

Foreclosure litigation is costly, time consuming and convoluted. Opinions are issued almost daily, but yet fail to fully clarify and/or provide guidance to judges tasked with making the initial determinations.

There is a lot to consider when a foreclosure case is placed on a judge’s docket. A typical non-judicial foreclosure issue (we’ll ignore home equity loans for now) is usually bifurcated into two parallel proceedings. The right to possession is often fought in the justice courts where the homeowner is usually the Defendant.

Justice of the peace courts and, on appeal, county courts, have jurisdiction of forcible-detainer suits, Tex. Prop. Code Ann. § 24.004 (Supp. 2011); Tex. R. Civ. P. 749. The sole issue in a forcible-detainer action is which party has the right to immediate possession of the property. The merits of the title shall not be adjudicated, Tex. R. Civ. P. 746.

As for the merits of title, those challenges must be brought by the homeowner in District or Federal Court. At first blush, it may not make economic sense to litigate two separate cases essentially involving the same parties and property. To understand the madness, we must first examine the intent behind it. “The Legislature has expressly provided by forcible entry and detainer proceedings a summary, speedy, and inexpensive remedy for the determination of who is entitled to the possession of premises, without resorting to an action upon the title. Brucker v. Tax Assessor Collectors, 2011 U.S. Dist. LEXIS 21972 (W.D. Tex. Mar. 4, 2011) (citing Scott v. Hewitt, 90 S.W.2d 816 (Tex. 1936) (emphasis added).

This model creates problems. What if possession can’t be determined without figuring out the merits of title? Is it equitable to kick someone out of their home when a legitimate title dispute exists? Texas courts have recognized the two can become intertwined “….so as to preclude adjudication of the right to possession without first determining title.” Mitchell v. Armstrong Capital Corp., 911 S.W.2d 169, 171 (Tex. App.—Houston [1st Dist.] 1995, writ denied).

In those situations, the justice and county courts on appeal lose jurisdiction. So, what does it mean? At what point do these two issues become “intertwined?” What is the burden of each party at the forcible detainer hearing? What evidence is sufficient, if any? Do we examine the deed of trust? Is there some other operative agreement? Is abatement proper, or should the justice court judge simply dismiss the case if he or she finds the two cases to be “intertwined?”

If the Judge is still awake, you may be able to get these questions answered in your hearing, but it will not be easy. I’ve seen judges throw their hands in the air and issue a ruling as if they just flipped a coin. I’ve seen judges walk out of hearings while the other side presents the counter-argument. It’s obvious that most judges do not care for these cases.

Smaller jurisdictions are even tougher. Justice Court Judges in these geographic areas are accustomed to hearing relatively simple family, criminal and landlord/tenant issues day-in-day-out. It’s rare when a contested foreclosure case falls on their desk, but when it does, the head scratching commences.

If done properly, a forcible detainer action may only take 5-10 minutes for a plaintiff to prove up its case. Now, enter a defendant challenging title and your 5-10 minutes quickly turns into hours. I recently had a forcible detainer “trial” that lasted three full days, expert testimony and everything. As you can imagine that “trial” was anything but “speedy.”

The argument for a complex litigation docket has been raised before, but the Texas legal community hasn’t given the idea the attention it deserves. Unfortunately, as a state that elects its judges, internal politics could pose a problem. Some states have seen success. See Connecticut’s Complex Litigation Docket, http://jud.state.ct.us/external/super/FACTS_083010.pdf; See also North Carolina’s Business Court (http://www.ncbusinesscourt.net/).

In the end, I don’t see a complex litigation docket in Texas anytime soon, but practitioners need to start having the discussion. Foreclosure defense involves intensive judicial case management, geographically dispersed parties and complex subject matter.

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